Supply chain or trade finance has become a much-discussed topic of late. Whilst many multi-nationals have successfully implemented programs to help their larger suppliers, most global trade is unsupported for a variety of reasons. These reasons include:
- a failure to on-board smaller suppliers and suppliers in emerging markets
- implementation complexity for the buyers
- the fact that finance comes to late to meet the needs of many suppliers (who need to be paid at shipment, not later after delivery when invoices are approved)
- a lack of support for pre-shipment (letter of credit, down-payments and other trade finance solutions)
- accounting concerns (in case supply chain finance is re-characterised from trade credit to short term debt)
PrimaDollar was founded in 2015 to provide a low cost and practical solution to the financing of supply chains around the world.
Their service is very simple. When an exporter ships his goods, PrimaDollar pays 90% of the value of the goods in cash to the exporter. The buyer can pay later and the PrimaDollar takes the buyer credit risk. There are a number of providers of this kind of service operating in India, but PrimaDollar’s operations are notable because of the low cost, and because of the pure “transactional” model which is employed. This means each shipment is individually financed and so there are no complex or longterm agreements involved.
PrimaDollar recently provided cash flow supports for an exporter based in Jaipur. The exporter was introduced by a channel partner, a local professional adviser who had been tasked with finding a solution to the business’ growing liquidity needs. Often exporters do work with professional advisers, and this generally makes life easier for everyone. Whilst PrimaDollar’s trade finance is not complicated, it is a new way of working in India and it is always better if a client can be independently advised. This helps to ensure that the trade finance product is the right one, and also ensures that the client builds confidence in the process.
The exporter needed additional liquidity to cope with an increase in orders from an established buyer, and because the buyer requested credit terms as part of the expansion of the business. Two pressures were being created: first the exporter needed additional funds to cover materials, labour and production for the increased volume, and second, the period between shipment and payment had to be covered somehow – and both the term and amounts involved were getting bigger.
In Jaipur, the exporter’s existing bankers were not able to propose a suitable solution. In line with normal banking practice, they requested additional collateral and additional fees for additional review work that would be involved, given that annual reviews of the exporter’s account had only recently been completed. But PrimaDollar was able to step in without making any such charges and without asking for collateral. This is because the trade finance product relies upon the performance of the supply chain and the creditworthiness of the buyer. Trade finance is the perfect solution here. We have a good quality international buyer who is increasing orders with the exporter actually because of the excellent performance of the supply chain.
The exporter did consider a variety of other options. One option would be to try and factor the invoices locally, but this proved to be difficult because the exporter’s particular industry is out of favour domestically – and because the buyer is in Thailand – a country that is not necessarily straightforward from an underwriting point of view. This is also an “open account trade” – there is no letter of credit, guarantee or surety. The exporter ships, invoices the buyer and waits for the payment. And this is something which domestic financing resources find particularly difficult to handle – but it is business as usual for a trade finance company.
PrimaDollar was able to provide a limit on the buyer within 48 hours, complete the KYC on the various parties involved, and provide a guarantee of funds availability. This allowed the exporter to agree the increased orders as they came in from the buyer. They operate four factories at the moment in Jaipur and the new business has now allowed them to go from one shift per day up to two shifts – with immediate effect.
This is a good example of how trade finance can be used to provide low cost, flexible and collateral-free financing for an exporter who is facing the happy challenge of increased business volumes. PrimaDollar was able to offer its lowest pricing because of the excellent track record of the particular supply chain and the good credit standing of the buyer.
There is a general sense across India that exporters are losing out on access to bank finance and low-cost liquidity. PrimaDollar – and other fintech trade finance platforms – are here to help – and that help can generate local employment and immediate prosperity for exporters in a position to take advantage.